Putting local flavor in San Jose airport: SMALL BUSINESSES FEAR SQUEEZE-OUT

Aug. 14--Longtime San Jose restaurateur Tim Muller would love to have a brand new Lou's Crab Shack in San Jose's gleaming new airport when it is finally completed in 2010.

Muller, who along with his brother closed his 60-year-old Lou's Village restaurant earlier this year, believes his dining concept would fit the city's long-trumpeted goal of showcasing local stores and restaurants at the place they call the Gateway to Silicon Valley.

But lately, several local small-business owners like Muller fear they are being squeezed out of a chance to get a lucrative spot at Mineta San Jose International Airport as it prepares to seek bids next month to replace all 28 storefronts with approximately 40 new stores and restaurants.

City officials "have been touting that it's going to have this local flavor, but when we ask, 'What are you going to do to ensure some local participation?', they haven't committed to doing anything," said Carolyn Allen-Samavarchian, owner of 50-year-old Paolo's Restaurant. "We just want a level playing field."

The bidding process has no provision to allow a business owner to bid for just one space. The city council voted two years ago to allow companies to bid for one of four packages of at least nine stores or restaurants each, or for the entire airport concession. Those contractors would sublease space to small businesses, including local ones, but many San Jose business owners say the airport hasn't been explicit enough with would-be bidders about how many to include, or what exactly "local" is.

City officials say rules governing federal grants prevent them from giving local businesses preference such as minimum quotas or rent rebates. But they say bidders are required to provide a mix of tenants, including local businesses.

The likely bidders "are national or international companies," said Brian Mundy of Schurra's Candy Factory in San Jose. "They don't know enough about San Jose to dive in and see which are the businesses that really represent San Jose."

The city will accept bids from two types of bidders for the approximately 18 restaurant spaces and 23 retail spots planned: a "master concessionaire" who would run or sublease to numerous restaurants or stores, or a developer who would stay on as a property manager. Most of the dozen or so restaurants at the airport currently are run under HMS Host, which is expected to bid.

Airport officials did not want to be put into the role of landlord.

"We evaluated that and decided we don't have the expertise to do that," said David Vossbrink, an airport spokesman.

But Vossbrink and other airport officials insist local businesses will be prominently featured.

Potential bidders, they say, must include a mix of local, regional, national and even international businesses. They also have told bidders they are looking for "concepts uniquely identifiable to the city of San Jose," according to pre-bid presentation materials.

Irv Tosk, supervising property manager at the airport, said he suspects that criterion could be the most heavily weighted in the request for bids. "If they do not make that part of their proposal, they will not get the contract," Tosk said.

In theory, numerous small businesses could band together and bid for one of the four packages, but the minimum $2 million in upfront capital investment makes that unlikely.

Small-business owners say they feel they're at the mercy of larger players. Some view concessionaires as monopolistic, with no incentive to make sure a single tenant succeeds. In some cases, the business owners are not even allowed to run their own stores.

"Usually what they do is say, 'We want to buy your concept and we'll give you 4 percent, now get out of here,' " said Muller, who owned Lou's Village.

What's more, some small-business owners say officials from HMS Host have told them that if they want to be part of HMS's bid, they would have to commit to an "exclusive" arrangement. That means if HMS loses the bid, so do they.

HMS executive Pat Banducci said his company sometimes needs exclusive deals to be competitive. But he said that when HMS runs a business, it is because that is what the owner wants. About half of the restaurants HMS oversees at the airport now are operated by the owners, not HMS, he added.

Other likely bidders, such as mall developer Westfield, reportedly are telling small-business owners that they won't prevent them from being part of another bidder's package -- but they won't guarantee them a spot if Westfield wins, either. Westfield spokeswoman Catharine Dickey said in an e-mail that the company doesn't talk about "speculation" but does not require exclusives.

Airport officials say that after holding 31 public meetings, they are acutely aware of the community's desire to showcase small local businesses.

Pat Dando, the head of the San Jose Silicon Valley Chamber of Commerce, said her group has been pushing airport officials to ensure that there is "strong consideration" given to local businesses; that airport concessions give travelers a taste of the region; and that small businesses aren't cut out of competition because conglomerates can better compete on price.

Vossbrink said airports nationwide are trying to feature more businesses that are unique to their cities, with fewer McDonald's or Starbucks outlets. "Everybody wants you to know you flew out of their airport."

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